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Annual Retail Technology Survey

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Survey shows that home furnishings retailers are  embracing information technology at an accelerating rate

Editor's Note: The following article from "Creating the Consumer Centric Retailer," the Sixth Annual Retail Technology Study compiled by Computer Sciences Corporation and Retail Info Systems News, queries retailers on their plans for the implementation of information systems (I/S) and information technologies (I/T).

This informative survey highlights the accelerating rate at which home furnishings retailers are embracing I/T. These include technologies as diverse as customer databases, EDI, POS terminals, executive information systems and interactive multimedia. Although the data was collected from a sample of the largest home furnishings retailers ($25 million to $1 billion in sales), the results present real retail concerns and potential technology solutions for all home furnishings retailers.

As is evident in the current industry "buzz," furniture retailers today face three principal challenges, all of them relating to consumers: frustration with the lack of differentiation between retailers in the segment; low brand recognition; and perceptions that furniture retailers' prices are inconsistent with the products' value.

Despite the fact that the economy is once again projected to have the greatest impact on their businesses in the coming year, furniture retailers clearly show increased concern about these fundamental changes in the marketplace. For instance, "condition of the economy" moved back into the number one spot this year among critical market challenges (named as such by 82% of furniture retail respondents--up sharply from 32% last year). But in second place, and growing in strength, is "Heightened consumer demand for value''--which fell from number one in 1995 but gained 13 points, to 55%, in the process.

"Pressure to optimize supply chain operations" remained in third, but also grew in strength--from 32% to 46%. And, notable is the frequent mention of "Vendors' increased interest in selling directly to consumers," a new market force surveyed this year, which was tagged by 27% of respondents as a major force--high enough for fourth place.

BUSINESS STRATEGY: Furniture/home furnishings retailers clearly line up behind one of only two missions as the foundations from which to address these market challenges. They describe their mission as either "helping customers define what they want and delivering it to them" (55%) or "being the most efficient and offering the lowest total cost" (45%). Surprisingly, given high consumer perceptions of product monotony within the industry, none said its mission is to offer the most innovative products.

As part of the mission of defining and delivering what customers want, a high percentage of these retailers offer customization: 73% said that they currently offer "significant consumer-specific product or service customization." This is higher than any other individual segment except automotive (80%) and much higher than the 43% for retailers overall--but not surprising, given the special-order nature of the industry.

To fulfill their missions and thrive in the midst of market changes, furniture retailers are investing heavily in I/T. A larger percentage of this segment than retailers overall plan to increase their I/S budget this year (55% versus 45%), and the average increase for the segment (33%) is much larger than the average for all retailers (18%).

This confidence in I/T is further evident in how critical furniture respondents think technology is to their success. An overwhelming majority-- 82%--believe I/T is "very critical" to retail success, which is much higher than the percentage for retailers overall (58%) and up dramatically in the segment from just 32% in 1995. And furniture retailers are not investing to simply survive marketplace changes; they intend to thrive. All furniture respondents are investing in I/T either to take a leadership role (55%) or to support anticipated growth (45% ).

TOP I/S STRATEGIES: Accordingly, the top activities supported by furniture respondents' I/T investments are, in order of importance: "Capitalizing on advances in I/T" (named by 82%); "Reengineering business processes through I/T," "Integrating systems," and "Improving the systems development process" (all tied for second with 64%); and "Connecting to vendors" (with 55%).

One of the strongest indicators of furniture retailers' determination to improve the nature of their relationships with customers is the strength of "Developing direct access to consumers via interactive technologies" as a critical issue. Although it did not finish in the top five, nearly half of the furniture respondents consider it a top concern.

KEY TECHNOLOGIES: Consistent with their efficiency and customer-focused missions, a number of furniture respondents have invested heavily in the past year in technologies that will simplify their business processes--both internal and customer-facing. Consider the percentages of respondents in 1996 versus 1995 who noted having already applied these technologies: executive information systems (64% in 1996 versus 37% in 1995); warehouse radio frequency tools (55% versus 21%); LANs (91% versus 42%); relational databases (82% versus 37%); electronic mail (73% versus 37%); graphical user interfaces (55% versus 21%); scanners/bar codes (82% versus 32%); and traditional POS terminals (64% versus 42%).

Similarly 82% have adopted EDI (versus 21% last year), and although they currently trail all other segments (except convenience) in the use of EDI for purchasing, 91% of furniture respondents said EDI use will increase in the next 12 months.

"Investment in these technologies makes sense given respondents' stated missions of either 'lowest total cost' or 'customer intimacy,"' noted Seth Kranz, a senior management consultant with CSC's Consumer Goods/Retail Practice. "By helping to smooth the flow of both products and information through the company's processes, technologies such as EDI, LANs, and warehouse RF devices can cut many inefficiencies and costs. And tools like EIS, relational databases, and better POS terminals make collecting and analyzing consumer information much easier."

WHAT'S MISSING: There are other technologies, currently missing from furniture retailers' installed I/T bases, that could contribute greatly to those whose mission is "to help customers define what they want and deliver it to them." The good news is that furniture retailers have incorporated them into their future plans. For example, 46% of respondents plan to adopt data warehouses within 18 months and an additional 18% plan to do so within three years. Similarly, 36% are planning interactive multimedia within 18 months and 27% within three years. Shopping kiosks are also on the books at 36% within 18 months and 18% within three years. And 73% of furniture respondents anticipate investing in consumer-specific databases within three years--evenly split between near term and long-term adoption.

Despite these adoption plans, however, Kranz/ believes that furniture retailers are dragging their feet in bringing these technologies aboard .

"Tools such as kiosks, combined with interactive multimedia or even virtual reality, could offer great leverage to furniture retailers trying to differentiate and customize their offerings," he explained. "Imagine designing your custom-made furniture by seeing how it looks in your 'virtual' living room. Furniture retailers definitely should consider more aggressive adoption plans for these tools.

"Similarly, consumer-specific databases are powerful tools for building both loyalty and 'share of customer.'" Kranz added. "So why is this segment waiting so long to implement them? Customer-specific knowledge is truly a revolutionary source of competitive advantage. The special order nature of much of furniture retailers' business--and their oft-stated mission of helping customers define what they want and delivering it to them--can only be differentiators if the retailer truly knows an individual customer's needs. Furniture retailers should be one of the first segments to exploit the potential of this technology."

Kranz also noted that consumer-specific databases could be particularly effective when combined with on-line shopping. However, as with all other segments, furniture retailers have done little in this area to date: 82% said they currently offer no on-line shopping. Unlike other retailers, the furniture segment appears to be gearing up to take the plunge into cyberspace, as 78%--more than double the percentage for retailers overall--said they plan to offer on-line shopping within the next 24 months.

APPLICATIONS: Business functions to which furniture respondents plan to apply technology also reflect a focus on the customer and on efficiency. Inventory remained the top area in 1996 (named by 64% of respondents), followed by merchandising (55%) and marketing (36%). Interestingly, marketing barely cracked the 10% barrier among other segments, a situation that Kranz says reflects "increased recognition within the furniture industry of the need to grow brand recognition and to better differentiate the offerings from one retailer to the next to escape the 'sameness' that customers have begun to resist."

In terms of specific activities to which they have applied technology, furniture retailers have broken from the pack in many areas. For example, consider the percentages of respondents who reported having already applied I/T to the following areas:

  • POS (100 % of furniture retailers versus 83% of all retailers).
  • Purchase order management (91% versus 68%).
  • Stock status (91% versus 65%)
  • Merchandise allocation/ distribution (82% versus 56%).
  • Vendor analysis (82% versus 52%).
  • Product profitability analysis (82% vs.51 % ).
  • Customer service (73% vs.47%).
  • Various barcode applications (73% versus 32%).
  • Merchandise planning and open-to-buy (73% vs. 54%).
  • Distribution center management (64% versus 44%).
  • Shipping container labels (64% vs. 28%).
  • Quick response applications (55% vs. 31%).

"In many ways, it seems that furniture retailers have remade themselves from last year," Kranz observed. "They still face stiff competition from other segments and too many look-alike competitors and product offerings within their own segment. But this year, they lead almost all other segments in the application of technology to key areas of their businesses that will enable offensive, rather than only defensive, action to deal with the challenges they face."

Conversely, Kranz says, there are a few key areas in which technology could offer great leverage, but for which reported plans for technology adoption within 18 months is low among furniture respondents. These are:

Frequent shopper programs: Only 18% have applied I/T to this area, and just 27% will do so within 18 months. However, an additional 36% plan application within three years.

Store manager workbenches: Again, only 18% have applied technology here, and there are no plans to do so within 18 months.

Labor scheduling: Just 36% have applied and just 18% plan to apply in the next 18 months.

Micro-marketing: This area has been addressed with technology by only 9% of furniture retailers, but 36% plan to do so in the near term.

"The furniture segment appears to have made significant progress in addressing the challenges it faces," Kranz said. "But there is still work to be done to improve efficiency and cost structures--for example, using tools to improve promotion effectiveness--and even more work to be done to truly customize offerings and fulfill the segment's mission of meeting customer needs more completely. However, the good news is that, despite some of the long lead times they're working with for specific technology adoption these retailers are investing and not retrenching. This will prove to be key to their success as the nature of the market and competition continues to evolve this year."

RANKINGS OF SOME TOP TECHNOLOGIES & STRATEGIES


FIVE MOST IMPORTANT I/S ACTIVITIES/STRATEGIES

1996 1995 1994

Capitalizing on advances in I/T 1 2 3

Improving the systems development process 2 5 4

Reengineering business Processes 2 1 1

Integrating Systems 2 2 1

Connecting to Vendors 5 4 6


1996 HOTTEST TECHNOLOGIES (NEXT 18-36 MONTHS)

Consumer Specific Databases #1

CD-ROM Catalogs #2

Interactive Multimedia #2

Imaging #2

Data warehouse #2


1996 HOTTEST I/T APPLICATION AREAS (NEXT 18-36 MONTHS)

Frequent Shopper Program 1

Transportation Management 1

Employee Training 3

Productivity Analysis 3

Buyer Workbench 3

Promotion Planning/Measurement 3

Duplicated numbers indicate a tie. For example, Frequent shopper programs were ranked as the hottest I/T application area (tied with transportation management) in the 1996 survey.


WHAT IS YOUR COMPANY'S MISSION? THREE MOST CRITICAL BUSINESS FUNCTION SHOW MUCH PURCHASING IS DONE VIA EDI?

46% of respondents plan to adopt data warehouses, 36% are planning interactive multimedia, and 36% anticipate installing shopping kiosks. 73% of furniture respondents anticipate investing in consumer-specific databases within three years.46% of respondents plan
to adopt data warehouses within 18 months and an additional 18% plan to do so within three years. 36% are planning interactive multimedia within 18 months and 27% within three years.
 

HEILIG-MEYERS
Consumerizing Delivery and Credit

Heilig-Meyers Furniture in Richmond, VA, has a new answer for the customer who asks, "When can I have that delivered?" More than 80% of the time, the answer is "right away." For the other 8%-10%, an associate can go on-line to immediately reserve the specific piece of furniture and discuss delivery options with the customer.

That way, "the customer can make the decision to wait or choose another product" in the store, according to Terry Hucks, vice president of I/S.

Heilig-Meyers is rolling out the system to 750 plus stores. The company's new distribution center (DC) in Athens, TX, will be the eighth DC to go on-line. All information on inventory levels in the DCs was in place before the system went on-line, enabling Heilig-Meyers' staff to be "close to correct" in servicing customer orders. Now they've made the process more responsive by putting the customer into it. For greater speed and less

frustration, Heilig-Meyers links AS/400s in stores, DCs, and headquarters by a Hughs satellite wide area network. The retailer provides reliable real-time communications to small-town stores and remote areas. Based on current downtime figures, the system is 98.56% reliable.

Sales associates also use financial models to speed up credit approval. And, by improving the readability of credit reports, Heilig-Meyers has made it easier for sales associates--and faster for the customer. According to Hucks, the company is rolling out centralized credit reporting to make the process even faster.

New enhancements to inventory availability will include an electronic catalog and multimedia, which will be installed in a group of test stores for the fall of 1996. Distance learning is "system-capable" and scheduled for 1997-1998 implementation. This technology will enhance the professional in-store training program for Heilig-Meyers' sales associates which will benefit customer service.

Furniture World is the oldest, continuously published trade publication in the United States. It is published for the benefit of furniture retail executives. Print circulation of 20,000 is directed primarily to furniture retailers in the US and Canada.  In 1970, the magazine established and endowed the Bernice Bienenstock Furniture Library (www.furniturelibrary.com) in High Point, NC, now a public foundation containing more than 5,000 books on furniture and design dating from 1620. For more information contact editor@furninfo.com.